How to Own Your Real Estate in Illinois

At Diamond Real Estate Law, we believe that real estate transactions should be simple, clear, and collaborative – and pave the way for a great future for you and your family. With over 15 years of experience, we are passionate about helping you start the next chapter of your life.

But real estate encompasses not only your primary residence, but also other things such as a vacation home or a rental property. 

The ideal form of ownership varies depending on the type of real estate you own. Below, we take a look at the different types of real estate and offer advice about the best form of ownership for each – and how they relate to planning for your future.

Because your primary residence receives special tax treatment, you should carefully consider how your home is owned. 

In Illinois, tenancy by the entirety offers married couples creditor protection from the creditors of one of the spouses (with a possible exception for federal tax liens) while still preserving relevant tax benefits. It also allows automatic transfer of ownership to the surviving spouse upon the death of the first spouse without court involvement.

In Illinois, you can transfer ownership of your primary residence to a joint revocable trust and still keep your tenancy of the entirety protection. Ownership by the trust also means that the real estate will not go through the lengthy, expensive, and public probate process but will instead be handled according to your wishes as specified in the trust document.

If you are single, owning your primary residence in your name allows you to take advantage of tax benefits for primary residences. Transferring ownership to a revocable living trust may also allow you to retain the applicable tax benefits with the added benefit of avoiding the probate process.

If asset protection is a major concern during your lifetime, certain types of irrevocable trusts may be suited for your needs but may require you to give up some control of the property.

The bankruptcy code provides additional protections for your primary residence. However, transferring your primary residence to a trust may impact your ability to claim the homestead exemption because the trust rather than you (the debtor) will be deemed to be the owner of the residence. If this situation could apply to you, it is important that you meet with a knowledgeable estate planning attorney before transferring your primary residence to a trust.

For some families, their vacation home has not only high monetary value but also significant emotional value. 

Ownership of a vacation home by a trust or limited liability company (LLC) can be advantageous because it addresses two main priorities: ease of transfer to the next generation and asset protection.

With a trust or LLC, you are able to establish rules for how the property is to be used and maintained, as well as designate what is to happen to the vacation home once you pass away. This can be a great solution if you want to ensure that the vacation home stays in the family for generations with minimal family conflicts.

An additional benefit of having an LLC own your vacation home is that it provides limited liability from outside claims. If a judgment is entered against the LLC, the creditor is usually limited to the accounts or property owned by the LLC to satisfy the creditor’s claims and cannot usually look at your personal accounts or property or those of the other members. 

Also, if a judgment is entered against you or another member for a claim unrelated to the LLC, it will be harder for a creditor to force a sale of the vacation home. This can be incredibly helpful if you wish to pass the vacation home on to the next generation without worrying about the individual financial situation of each new member.

If the vacation home has been in the family for many years, it is important to consult with a real estate lawyer like the ones on our team at Diamond Real Estate Law, as well as your tax advisor to make sure that transferring your vacation home to a trust or LLC will not cause an increase in your property taxes or other unintended consequences.

Because rental property is an income stream rather than a residence, asset protection is usually the primary concern. 

As a landlord and owner of rental property, you face a higher probability of lawsuits arising in connection with the property because the occupants can change over time. 

Transferring ownership of the rental property to an LLC is a great option. If a renter gets injured on the property, sues the LLC that owns the property, and obtains a judgment that exceeds any property insurance you have, the renter can seek satisfaction of any claims only from the accounts and property owned by the LLC, not from your personal accounts and property or those of any other owners of the LLC.

In addition, ownership by the LLC may protect the rental property from your personal creditors. 

However, before switching ownership, it is important to check with your insurance provider to see if it will impact your insurance coverage or premium. It is also important to get tax advice to make sure you are aware of any potential income tax implications of changing ownership.

Selling a home after a loved one passes away is never an easy experience. Many families struggle to get the house cleaned out and ready for sale. The last thing most families need is a bunch of expensive and time-consuming legal complications getting in the way of the sale. 

If the owner owned the property in their name and did not do any additional planning, their heirs (people inheriting the property) may need to open a court case to sell the property or they may need to pay a bond to a title company. These bonds can be as much as 2% to 3% of the purchase price. Many title companies will also require the heirs to indemnify the title company (reimburse them) for any claims made after the sale.

The good news is that many of these complications and costs are avoidable with a little planning ahead of time.

There are four major ways to make sure your property goes where it needs to if you pass away:

This is one of the most common ways making sure your home goes where you want it to after you pass away. A trust is basically an agreement for someone to hold onto some property for the benefit of another person. They can come in many shapes and sizes. There are simple trusts designed to hold title to land, trusts that involve a bank or corporation as a manager and there are trusts used for estate planning (also called family legacy planning).

A trust is created and managed by a trust agreement. The trust agreement is like an empty suitcase. It is the instructions of what to do with the things in the trust (suitcase). It also designates a person (or people) in control of your stuff, called the Trustee. Once you put your stuff in the suitcase, the person carrying it, the Trustee, is in control of your stuff but has to follow the instructions. The people receiving the benefits of the property in the trust are called beneficiaries.

If your home is in a trust and you pass away, the next trustee identified in the trust can sell the property or do whatever is allowed by the trust agreement. This usually avoids the need to go to court or pay a bond to the title company.
If you already have an estate plan or family legacy plan that has a trust, it is usually a good idea to transfer your home into the trust.

Another option is to add people to the title of your home while you are still alive. If done correctly, the other people on the title can automatically assume ownership of the property when you pass away.

A major disadvantage to doing this is it immediately gives the other people ownership of your property. It is important to consult an attorney when exploring this option to understand the rights you are giving to the people you are adding to the title.

Another option is to record a transfer on death instrument. When prepared and recorded correctly, this instrument can automatically transfer the title to someone else after you pass away without having to go to court.

A major benefit of this is that it does not give the recipient any immediate legal rights to the property. This instrument can also be rescinded or modified. In some situations, there can also be tax benefits to transferring property in this manner.

This option is similar to putting a property in a trust. Whoever takes control of the company after you pass also has control of the property.  This option provides some additional liability protection but also can have insurance and income tax complications.

No matter which option you choose, a little planning ahead of time can save your loved ones a lot of time money and aggravation.  If you’re interested in learning more about how to protect your home and make sure it goes to the right people, the team at Diamond Real Estate Law is ready to help.  Give us a call or visit our website to schedule a time to chat with our next available team member.

Whether you are concerned about your primary residence, family cabin, or rental property, our McHenry, Illinois team at Diamond Real Estate Law is here to assist you in protecting your valuable property. Given the various considerations for selecting a form of ownership, it is important to have the right advisors helping you along the way. Give us a call so we can discuss your current and future real estate ventures and the best way to protect them for generations to come.

DISCLAIMER: Any information contained herein is solely for informational purposes. While it is important that you educate yourself, nothing herein should be construed as legal advice or create an attorney-client relationship. For specific questions, we urge you to contact a local attorney for advice pertaining to your specific legal needs.